10/06/2023
***CASE STUDY***
Would you like to help your child purchase their first property?
Read on to understand how a lump sum cash gift would affect your child's purchasing power and borrowing capacity....
Scenario Overview:
Linda is a 30yo, single applicant, have never owned a home
Income $95,000 p.a.
Savings of $55,000
No HECS or other forms of debt, average expenses.
Since Linda is a First Home Buyer, and based on her particular situation, she is eligible for number of Government's incentives, including:
✅ First Home Guarantee (government assistance where essentially they guarantee up to 20% of the value of the property; conditions and eligibility criteria apply)
✅First Home Buyer Assistance Scheme (a government assistance where low or no stamp duty is payable, conditions and eligibility criteria apply)
The question is really what are Linda's: borrowing capacity (max size of the loan she is able to service) and purchasing power (max price of the property) with or without a cash gift from her family.
See the outcome below:
➡ First Home Buyer without any financial assistance from her family:
- Borrowing capacity: $535,000
- Purchasing Power: $585,000
➡ First Home Buyer with a lump sum cash gift of $100,000 from her family.
- Borrowing capacity: $535,000
- Purchasing Power: $679,000 (increasing to $685,000 from July 1, 2023)
As you can see, since Linda is a first home buyer, the government incentives already allow her to save on LMI as well as access lower interest rates and eliminate stamp duty, in turn increasing her purchasing power and borrowing capacity.
Therefore, in Linda's circumstance, a cash gift strategy essentially helps only with increasing the maximum price tag (Purchasing Power) of a home she can buy, by the amount of the cash gift, while keeping the loan amount (Borrowing capacity) she can apply for, unchanged.
Let us know if you are looking to purchase your first property or understand the options of how you can help your kids get into the property market.
